Are we saving or spending money with PPACA?

Will the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) PPACA actually save money? Will it do as President Obama promised and curb spending while providing health care for many more individuals? Or will it, as Senator Jeff Sessions (R-Ala.) states, cost the government $6.2 trillion? Although the recent GAO report says the answer is “depends,” the Congressional Budget Office (CBO) recently reviewed its estimates claiming that Medicare and Medicaid spending will decrease substantially. So, who do you believe?

In a hearing in late February, Sessions stated that “According to GAO [Government Accountability Office], under a realistic set of assumptions, the health care law will increase the deficit by…roughly $6.2 trillion over the next 75 years.” Sessions requested that the GAO estimate what would happen if the cost containment provisions in the law, such as the Independent Payment Advisory Board, excise tax on high-cost plans, and reductions in Medicare payments to providers are “phased out over time” while the coverage provisions remain. Given this set of circumstances, the GAO concluded that if the portions of the law that were specifically designed to keep costs under control don’t go into effect, then the law won’t be effective in lowering health care costs.

The same GAO report, however, also concluded that if “both the expansion of health care coverage and the full implementation and effectiveness of the cost-containment provisions” are sustained, “there was notable improvement in the longer-term outlook.” It was only by completely phasing out the cost savings mechanisms of PPACA that the report provided the estimates it did.

Even under the most optimistic simulation, the GAO noted the country’s spending on health care is not sustainable over the long haul. According to the report, federal health care spending is expected to continue growing faster than the economy. In the near term, this is driven by increasing enrollment in federal health care programs due to the aging of the population and expanded eligibility. This targets two programs, Medicare and Medicaid, which, under a new CBO report, the outlook remains positive.

On February 5, the CBO released a report actually reducing its estimates of spending for the Medicare and Medicaid programs compared with its estimates in the August 2012 baseline. For the 2013–2022 period, CBO estimates projected spending for those programs is now $382 billion (or 3.5 percent) below the agency’s prior estimates in August 2012.

CBO Director Doug Elmendorf recently commented in a blog post that three types of developments might cause the CBO to revisit its projections: (1) enacted legislation, (2) updates to the economic forecast, and (3) technical changes. Technical changes, which have a hefty impact on spending, accounted for a total of $373 billion. The legislative and economic changes, Elmendorf noted, accounted for $9 billion. The biggest noted decrease projected by the CBO is for Medicaid spending. For the 2013–2022 period, CBO has reduced its estimate of Medicaid spending by $239 billion (or about 5.5 percent) compared with its estimate in August 2012. As for Medicare, CBO has reduced its 10-year projections of outlays for Medicare by $143 billion (or about 2 percent). No matter how you look at it, estimates for health care spending look to decrease over the next several years.